Educational Articles

Drug Roundup – May 15, 2014

Michael Ratty
| May 15, 2014

There have been several noteworthy developments in the drug space recently, which will likely have a material impact on the companies in this sector and the markets they serve. In this review, we will discuss Pfizer Inc. (PFE - Free Pfizer Stock Report), AstraZeneca PLC (AZN), Merck & Co. (MRK – Free Merck Stock Report), Bayer AG (BAYRY), Eli Lilly & Co. (LLY), and Novartis AG (NVS).

Pfizer Pursues AstraZeneca Acquisition

The most noteworthy drug news of the past month, or year for that matter, has to do with Pfizer’s recently-announced pursuit of British rival AstraZeneca. While speculation had been swirling for weeks, Pfizer made it official in a late-April press release announcing that it had been trying to purchase London’s second-largest drugmaker since January, but had been rejected on three separate approaches. AstraZeneca claimed that the most recent offer, which was valued at roughly $106 billion in cash and stock, significantly undervalued the company’s prospects, particularly its portfolio of drugs in development. Pfizer is widely expected to return to the deal table with a sweeter offer sometime in the coming weeks.

Over the past several years, AstraZeneca has frequently been touted as a potential takeover candidate, given its ongoing struggles with patent expirations on several top-grossing products. While growth concerns still linger, the company maintains an attractive pipeline of experimental cancer drugs that appear to be the apple of Pfizer’s eye. The drug giant’s last big acquisition came back in 2009 when it bought Wyeth for $68 billion.

Bayer Wins Auction for Merck’s Consumer Care Unit

On May 6th, Merck announced that it had entered into a definitive agreement to sell its consumer care business to Bayer AG in a deal valued at $14.2 billion. Germany-based Bayer reportedly edged out multiple rival bidders during the process, including Proctor & Gamble, Boehringer Ingelheim, Novartis AG, and Sanofi. Under the terms of the agreement, Bayer will acquire Merck’s existing OTC business, which includes the global trademark and prescription rights for popular products Claritin and Afrin. Merck anticipates after-tax proceeds of between $8 billion and $9 billion from the sale, which is expected to close in the first half of 2014. If successfully completed, the transaction would represent the largest in Germany’s healthcare industry since Bayer purchased Schering for $24 billion in 2006.

Lilly to Acquire Novartis’ Animal Health Business

Another big deal announced in the second quarter was Eli Lilly’s $5.4 billion all-cash purchase of Novartis’ animal health unit. With a strong global commercial infrastructure, nine manufacturing sites, six dedicated R&D facilities, and a robust portfolio of 600 products and another 40 in development, the transaction stands to greatly strengthen and diversify Lilly’s existing business, known as Elanco. In fact, it would create the second-largest animal health company in the world in terms of global revenue. Lilly said it plans to fund the deal with about $3.4 billion of cash on hand and $2.0 billion in loans, but did not disclose any other financial terms. The deal is expected to close by the end of the first quarter of 2015 pending the customary closing conditions and regulatory approvals.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.